A story that should have a higher media profile is the SEC’s civil lawsuit against Bank of America. I would suggest a thorough reading of the Wall Street Journal’s latest op-ed on the subject; but for the purposes of this post, a quick recap is sufficient.
Last year, Bank of America entered into a deal to buy the failing Merrill Lynch. However, toxic assets were discovered on Merrill Lynch’s books. Then Chairman, CEO, and President Kenneth Lewis (he has since lost the position of Chairman), planned on disclosing this new information to investors before the board voted to approve the Merrill Lynch deal. Lewis, however, never disclosed the toxic assets. He claims his clear violation of SEC regulations (and basic ethics) is due to pressure applied by former Treasury Secretary Paulson.
The SEC’s lawsuit against Bank of America seems to indicate that Lewis’ accusations are true. Primarily because the SEC’s lawsuit is against Bank of America and not Kenneth Lewis. The standard practice in cases of this kind would be for the SEC to file charges against the individual officers who have committed a wrongdoing. The logic being that the shareholders have already suffered once from the fraud perpetrated by the corporate officers, fining the corporation as a whole would be inflicting further damage on the shareholders, who have already been victimized.
Granted, all the facts are certainly not presently clear in this case (as there has yet to be a thorough investigation into the matter). However, this entire issue would have been avoided had we not had a government willing and eager to involve itself in the affairs of private businesses. Organizations and individuals fail, it is part of the process of creative destruction that is an inherent and necessary part of capitalism. When this process is impeded, and a successful firm such as Bank of America is forced to compensate for an unsuccessful firm such as Merrill Lynch, everybody loses.
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